Won Goes from Strength to Strength

Nov 23, 2017 12:18

The won keeps strengthening against the U.S. dollar, closing at W1,089.1 on Wednesday, up W6.7 from a day earlier and the highest since May 2015.

The strengthening won has raised alarm bells among exporters because it makes their products more expensive overseas. But forex authorities have few options since Korea is already on a U.S. watchlist for currency manipulation.

Traders forecast the won could rise to W1,050, which is considered the Maginot Line among exporters where they start to lose money.

Experts attribute the rise to many factors. First, the Korean economy is showing signs of recovery as exports are powering on. Also, the Bank of Korea has signaled a raise in interest rates and tensions of the Korean Peninsula appear to be easing slightly.

As a result, foreign investors who stood on the sidelines in August and September are returning to the Korean stock market. On top of that, a bilateral currency-swap agreement with Canada last week added fuel to the won.

The Korean currency has risen W23.2 against the greenback in just five trading days.

/Yonhap

But while exporters are fretting, a strong won boosts the spending power of Korean consumers and could positively impact private consumption.

Cho Byung-hyun, a stock analyst at Yuanta Securities, said, "The won has strengthened quickly over a short period, but from a broader perspective, the currency's value has simply returned to levels of other newly-emerged economies."

Cho added that global trade volume is rising so the impact of the strong won on Korea's exports is limited. But others said the high proportion of exports in Korea's economy makes a strong won dangerous to growth, while any benefits for private consumption are minimal.

Traders expect the won to keep rising. Park Sang-hyun at Hi Investment and Securities said, "Forex authorities here have their hands tied behind their backs, so there is a strong chance of the won strengthening to W1,050 next year."

The next rate decision by the BOK is expected to play a key role in the future direction of the won.